Gtech (NYSE:GTK)
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GTECH Announces Strong Second Quarter Results
WEST GREENWICH, R.I., Sept. 21 /PRNewswire-FirstCall/ -- GTECH Holdings
Corporation (NYSE:GTK) today announced second quarter earnings for fiscal year
2005 ended August 28, 2004.
"It was yet another quarter of steady growth and profitability for GTECH," said
GTECH President and Chief Executive Officer W. Bruce Turner. "Total revenues
grew approximately 17 percent, quarter-over-quarter, driven by continued
improvements in same-store sales, the benefit of recent acquisitions, and
strong product sales. In addition to a solid financial performance, we had a
successful quarter across all three GTECH vertical markets -- lottery, gaming
solutions, and commercial services."
"We are pleased with the continued strength of our core business and the
progress we have made in integrating our recent acquisitions," said GTECH
Senior Vice President and Chief Financial Officer Jaymin B. Patel. "We are
excited about the opportunities we see in each of the markets we serve, and
based upon our current outlook, we are confident we can achieve our goals and
objectives in the current fiscal year and beyond."
Operating Results
Earnings and dividends per share for the three and six month periods of the
prior year have been restated to reflect the 2-for-1 common stock split
effected in the form of a stock dividend, which was distributed on July 30,
2004, to shareholders of record as of July 1, 2004.
Revenues for the second quarter of fiscal 2005 were $323.5 million, up 16.7%
over revenues of $277.2 million in the second quarter of fiscal 2004. Net
income was $53.1 million, or $0.40 per diluted share, up 9.5% over net income
of $48.5 million, or $0.37 per diluted share, for the same period last year.
Revenues for the first six months of fiscal 2005 were $603.7 million, up 16.8%
over revenues of $516.8 million in the first six months of fiscal 2004. Net
income was $106.7 million, or $0.80 per diluted share, up 19.2% over net income
of $89.5 million, or $0.72 per diluted share, for the same period last year.
Net income in the first six months of fiscal 2005 includes a net, one- time,
after-tax gain of $6.4 million, or approximately $0.05 per diluted share,
associated with the sale of the Company's 50% interest in Gaming Entertainment
(Delaware) L.L.C., net of charges associated with the early retirement of the
remainder of the Company's 2007 private placement notes.
Cash Flow and Investments
During the first six months of fiscal 2005, the Company generated $171.8
million of cash from operations which, along with other sources of liquidity,
was principally used to fund the Spielo Manufacturing Incorporated and Leeward
Islands Lottery Holding Company, Inc. acquisitions of $192.4 million, and to
purchase systems, equipment and other assets relating to contracts of $113.0
million. In addition, the Company repaid the remaining $90.0 million of its
7.87% Senior Notes; repurchased $82.8 million, or 3,649,500 shares, of the
Company's common stock; and paid cash dividends of $20.1 million.
At the end of the fiscal 2005 second quarter, GTECH had $15.0 million of
borrowings under its $300 million credit facility.
Financial Outlook
The Company provided guidance for the full year and third quarter of fiscal
2005.
For the fiscal year ending February 26, 2005, GTECH expects service revenue
growth in the range of 5% to 7%, and product sales in the range of $210 million
to $220 million.
The Company continues to expect service profit margins to be in the range of
40% to 42%, and product sale profit margins to be in the range of 36% to 38%.
The Company expects the effective tax rate for the fiscal year to be in the
range of 35% to 36%, compared to 37% reported in the first half of the fiscal
year. It expects the most significant portion of the rate reduction will take
affect in the third quarter.
Based upon the results of the first half of the fiscal year and the current
outlook, it continues to expect earnings per share for fiscal 2005 to be in the
range of $1.43 to $1.48 on a fully-diluted basis, reflecting the two-for-one
stock split that occurred on July 30, 2004.
For the third quarter of fiscal 2005, ending November 27, 2004, the Company
expects service revenue growth in the range of 6% to 8%, and product sales in
the range of $55 million to $65 million. The Company expects service margins
in the range of 38% to 40%, and product margins in the range of 37% to 39%. It
expects the effective tax rate for the quarter to be approximately 33%.
Accordingly, the Company expects earnings per share to be in the range of $0.33
to $0.36 per share for the quarter. This compares with $0.35 reported in the
same period last year, which included a one-time, after-tax, non-cash gain of
$3.3 million, or $0.03 per diluted share, associated with the consolidation of
the partnership that owns the Company's headquarters facility in Rhode Island.
Second Quarter Highlights
In the second quarter, GTECH continued to strengthen its market leadership in
the core lottery business. Internationally, the Company was chosen to provide
5,000 additional handheld lottery terminals to Organizacion Nacional de Ciegos
Espanoles (ONCE) in Spain, following a previous order of 7,000 handheld
terminals also awarded to GTECH by ONCE in the second quarter. In addition,
Cogetech, a joint venture in which GTECH is the technology and services
provider, was named a successful applicant for a five-year license to operate a
gaming machine network and central system in Italy. The Company also signed a
long-term integrated services contract to provide a complete video lottery
solution in Jamaica. In Mexico, GTECH's original contract award with
Pronosticos para la Asistencia Publica was reinstated in August, and the new
six-year integrated services contract was ultimately signed by both parties in
early September 2004.
Domestically, GTECH signed a three-year contract extension in Oregon and was
awarded a new Instant Ticket Vending Machine (ITVM) contract in Maine.
On the commercial services side, GTECH began selling prepaid mobile phone
top-ups through its 200 lottery terminals in Barbados in June 2004. The
Company also launched bill payment services at approximately 700 terminals
throughout Poland utilizing the PolCard network.
Also in the quarter, GTECH unveiled GamePoint(TM), the Company's new all-
in-one instant and online lottery terminal solution. The innovative GamePoint
terminal dispenses both instant and online tickets, combining GTECH's world-
leading online expertise and Interlott's instant ticket self-service
leadership.
"In total, we secured between $220 million and $240 million in total
incremental future revenues this last quarter," continued Mr. Turner.
After the close of the quarter, GTECH signed a three-year contract extension
with the Minnesota State Lottery to commence on February 10, 2008. In addition,
to advance its commercial services strategy, the Company recently announced it
had acquired BillBird S.A., the leading provider of electronic bill payment
services in Poland.
Other Business Developments
Sri Lanka
GTECH's customer in Sri Lanka, the Mahapola Higher Education Scholarship Trust
Fund (MTF), was recently notified by the Supreme Court of the Democratic
Socialist Republic of Sri Lanka that it may resume with the implementation of
its lottery games in the country. In March 2004, lawsuits were filed by
competitors challenging GTECH's contract award and thus delayed the
implementation of the instant ticket and online games in Sri Lanka. All such
lawsuits have been settled, without any payment by GTECH, and have been
dismissed.
Certain statements contained in this press release are forward looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company identifies
forward looking statements by words such as "may," "will," "should," "could,"
"expect," "plan," "anticipate," "intend," "believe," "estimate," "continue," or
similar words that refer to the future. Such statements include, without
limitation, statements relating to the prospects and financial outlook for the
Company, which reflect management assumptions regarding: (i) the future
prospects for and stability of the lottery industry and other businesses in
which the Company is engaged or expects to be engaged, (ii) the future
operating and financial performance of the Company (including, without
limitation, expected future growth in revenues, profit margins and earnings per
share), and (iii) the ability of the Company to retain existing business and to
obtain and retain new business. Such forward looking statements reflect
management's assessment based on information currently available, but are not
guarantees and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in the forward looking
statements.
These risks and uncertainties include, but are not limited to, those set forth
above, in the Company's subsequent press releases and on reports by the Company
on Forms 10-K, 10-Q and 8-K, and other reports and filings with the Securities
and Exchange Commission, as well as risks and uncertainties respecting: (i)
the potential impact of extensive and evolving government regulations upon the
Company's business; (ii) the ability of the Company to continue to retain and
extend its existing contracts and win new contracts; (iii) the possibility of
slower than expected growth or declines in sales of lottery and gaming goods
and services by the Company or the Company's customers; (iv) exposure to
foreign currency fluctuations; (v) risks and uncertainties inherent in doing
business in foreign jurisdictions; (vi) the relatively large percentage of the
Company's revenues attributable to a relatively small number of the Company's
customers; (vii) the possibility of significant fluctuation of quarterly
operating results; (viii) the intensity of competition in the lottery and
gaming industries; (ix) the possibility of substantial penalties under and/or
termination of the Company's contracts; (x) the ability of the Company to
respond to technological change and to satisfy the future technological demands
of its customers; (xi) opposition to expansion of lottery and gaming; (xii) the
Company's ability to attract and retain key employees; and (xiii) the
possibility of adverse determinations in pending legal proceedings.
GTECH, a leading global information technology company with over $1 billion in
revenues and more than 5,500 people in 45 countries, provides software,
networks, and professional services that power high-performance, transaction
processing solutions. The Company's core market is the lottery industry, with
a growing presence in commercial gaming technology and financial services
transaction processing. For more information about the Company, please visit
GTECH's website at http://www.gtech.com/.
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended
August 28, August 23,
2004 2003
(Dollars in thousands,
except per share amounts)
Revenues:
Services $248,114 $238,019
Sales of products 75,401 39,228
323,515 277,247
Costs and expenses:
Costs of services 148,481 132,805
Costs of sales 43,874 28,810
192,355 161,615
Gross profit 131,160 115,632
Selling, general and administrative 29,889 27,051
Research and development 12,647 14,106
Operating expenses 42,536 41,157
Operating income 88,624 74,475
Other income (expense):
Interest income 981 1,021
Equity in earnings of unconsolidated
affiliates 293 2,691
Other income (expense) (1,924) 465
Interest expense (3,719) (1,705)
(4,369) 2,472
Income before income taxes 84,255 76,947
Income taxes 31,174 28,471
Net income $53,081 $48,476
Basic earnings per share $0.45 $0.42
Diluted earnings per share $0.40 $0.37
Weighted average shares outstanding -
basic 117,070 115,836
Weighted average shares outstanding -
diluted 132,743 131,815
Dividends per share - common stock $0.085 $0.085
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Six Months Ended
August 28, August 23,
2004 2003
(Dollars in thousands,
except per share amounts)
Revenues:
Services $501,440 $461,557
Sales of products 102,280 55,275
603,720 516,832
Costs and expenses:
Costs of services 295,774 259,602
Costs of sales 59,791 37,439
355,565 297,041
Gross profit 248,155 219,791
Selling, general and administrative 57,524 51,331
Research and development 25,734 28,496
Operating expenses 83,258 79,827
Operating income 164,897 139,964
Other income (expense):
Interest income 2,316 2,209
Equity in earnings of unconsolidated
affiliates 1,599 4,620
Other income (expense) 8,601 (715)
Interest expense (8,055) (4,011)
4,461 2,103
Income before income taxes 169,358 142,067
Income taxes 62,662 52,565
Net income $106,696 $89,502
Basic earnings per share $0.91 $0.78
Diluted earnings per share $0.80 $0.72
Weighted average shares outstanding -
basic 117,848 114,826
Weighted average shares outstanding -
diluted 133,860 125,988
Dividends per share - common stock $0.17 $0.085
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 28, February 28,
2004 2004
ASSETS (Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents $30,267 $129,339
Investment securities available-for-
sale - 221,850
Trade accounts receivable, net 134,449 118,902
Sales-type lease receivables 7,848 7,705
Inventories 94,025 76,784
Deferred income taxes 32,559 34,396
Other current assets 31,868 24,426
TOTAL CURRENT ASSETS 331,016 613,402
SYSTEMS, EQUIPMENT AND OTHER ASSETS
RELATING TO CONTRACTS, net 649,800 591,362
GOODWILL, net 324,916 188,612
PROPERTY, PLANT AND EQUIPMENT, net 66,484 57,576
INTANGIBLE ASSETS, net 72,614 28,231
REFUNDABLE PERFORMANCE DEPOSIT 20,000 20,000
SALES-TYPE LEASE RECEIVABLES 13,664 17,653
OTHER ASSETS 43,858 42,295
TOTAL ASSETS $1,522,352 $1,559,131
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $73,344 $80,004
Accrued expenses 50,881 47,428
Employee compensation 19,798 33,981
Advance payments from customers 70,955 104,128
Deferred revenue and advance billings 32,159 14,459
Income taxes payable 27,173 12,394
Taxes other than income taxes 19,443 19,459
Current portion of long-term debt 4,848 106,319
TOTAL CURRENT LIABILITIES 298,601 418,172
LONG-TERM DEBT, less current portion 474,099 463,215
OTHER LIABILITIES 79,265 53,736
DEFERRED INCOME TAXES 88,233 61,719
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $.01 per
share - 20,000,000 shares
authorized, none issued - -
Common Stock, par value $.01 per
share - 200,000,000 shares
authorized,
116,551,144 and 184,590,808 shares
issued; 115,621,098 and 118,395,168
shares outstanding at August 28, 2004
and February 28, 2004, respectively
(shares adjusted to reflect July 2004
two-for-one stock split and treasury stock
retirement) 1,166 923
Additional paid-in capital 272,935 266,320
Accumulated other comprehensive loss (69,369) (70,508)
Retained earnings 396,629 839,270
601,361 1,036,005
Less cost of 930,046 and 66,195,640
shares in treasury at August 28, 2004
and February 28, 2004, respectively
(shares adjusted to reflect July 2004
two-for-one stock split and treasury
stock retirement) (19,207) (473,716)
582,154 562,289
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,522,352 $1,559,131
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
August 28, August 23,
2004 2003
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $106,696 $89,502
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 68,504 51,924
Intangibles amortization 4,510 1,609
Deferred income taxes benefit 13,904 -
Tax benefit related to stock award plans 6,615 10,696
Net charge associated with the early
retirement of debt 751 -
Gain on sale of investment (10,924) -
Other 7,977 3,612
Changes in operating assets and
liabilities:
Trade accounts receivable (11,894) 9,769
Inventories (5,255) 14,839
Accounts payable (9,111) (3,723)
Employee compensation (15,996) (8,437)
Advance payments from customers (5,904) 10,066
Deferred revenue and advance billings 17,700 (4,610)
Income taxes payable 15,664 (3,858)
Other assets and liabilities (11,480) (935)
NET CASH PROVIDED BY OPERATING ACTIVITIES 171,757 170,454
INVESTING ACTIVITIES
Acquisitions (net of cash acquired) (192,402) (41,023)
Purchases of systems, equipment and
other assets relating to contracts (113,011) (143,774)
Purchases of available-for-sale
investment securities (50,150) -
Maturities and sales of available-
for-sale investment securities 272,000 -
Proceeds from sale of investment 11,773 -
Purchases of property, plant and
equipment (6,359) (6,285)
Increase in restricted cash (5,112) -
Investments in and advances to
unconsolidated subsidiaries (1,435) (1,185)
License fee - (12,500)
NET CASH USED FOR INVESTING
ACTIVITIES (84,696) (204,767)
FINANCING ACTIVITIES
Net proceeds from issuance of long-
term debt 15,000 1,409
Principal payments on long-term debt (92,249) (2,146)
Purchases of treasury stock (82,808) -
Redemption premium paid in connection
with the early retirement of debt (10,610) -
Dividends paid (20,135) (9,883)
Proceeds from stock options 4,966 21,101
Other 739 (484)
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (185,097) 9,997
Effect of exchange rate changes on
cash (1,036) 2,464
DECREASE IN CASH AND CASH EQUIVALENTS (99,072) (21,852)
Cash and cash equivalents at
beginning of period 129,339 116,174
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $30,267 $94,322
Contact: Robert K. Vincent
Public Affairs
GTECH Corporation
401-392-7452
DATASOURCE: GTECH
CONTACT: Robert K. Vincent, Public Affairs, GTECH Corporation,
+1-401-392-7452
Web site: http://www.gtech.com/